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Boost as the services sector hits year high

The biggest sector of the UK economy grew at its fastest pace for more than a year in March after services companies saw a surge in new business, according to a survey.

The latest services sector Markit/CIPS Purchasing Managers' Index (PMI) survey - where a reading above 50 indicates growth - leapt to 57.1 in March, from 52.6 in February, marking the strongest reading for 13 months.

Markit economist Paul Smith said the services industry performance survey, combined with recent improvements in the manufacturing and construction sectors, suggested the wider economy grew by as much as 0.8% in the first three months of 2011.

This would be a significant rebound from the 0.5% contraction seen in the snow-hit final quarter of 2010.

The March result took the average Markit/CIPS reading for the services sector to 54.7 over the first quarter, which is the strongest since the second quarter of last year.

Firms benefited from improved business conditions, higher sales and increased inquiries.

The growth in new business has been the sharpest for 12 months.

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The hike in business levels tested capacity, as backlogs of work rose for the first time since September 2007, the survey revealed.

Activity in the services sector is key to wider economic growth, as it accounts for 75.8% of gross domestic product (GDP).

Mr Smith said: "Services activity growth surprised well to the upside in March and points to the strongest expansion of the sector since the economy was surging out of its recession early last year.

"Allied to a robust underlying growth trend in manufacturing and the recent improvement in construction, we look for GDP in the first quarter to have rebounded by as much as 0.8%."

Vicky Redwood, senior economist at Capital Economics, said the bounce back may have been exaggerated by weaker February readings as the post-snow 'catch-up' in January faded.

She said: "Nonetheless, this is still the highest reading in over a year and consistent with quarterly services sector growth of a decent 0.7% or so."

But the survey showed profit margins came under increasing pressure last month as firms tried to avoid passing on higher costs.

High energy and fuel costs drove the rate of input price inflation to the second strongest since mid-2008.


The services industry's PMI survey reading for the month of March